Russian Economic Resilience

Western political commentaries about the condition of the Russian economy are becoming increasingly illusory, as additional economic sanctions are imposed for a series of increasingly implausible reasons, the most recent ones including those being for alleged Russian complicity in chemical weapons attacks in Syria, those supposedly for the alleged attack on Sergei and Yulia Skripal, and some more regarding Crimea. It might seem self-evident that such measures are pretty futile, given the obvious effect that earlier sanctions have had in galvanising the Russian government into action to mitigate the effects of almost any conceivable future sanctions, but that very failure might be precisely the motive for the West’s renewed sanctions. Existing sanctions have been of limited effectiveness, and Russia is now self-evidently capable of defending itself against virtually any conventional military attack. Even the US recognizes that it would face considerable difficulty in a war against Russia.

For that reason, other sanctions apparently need to be employed to probe the economy for possible other weaknesses, or at least to slow down the development of serious Russian competition in new sectors, such as civil aviation. An additional motive is probably to weaken Russia militarily prior to starting a conflict, despite the assessments above. What Professor Stephen Cohen describes as the ‘war party’ seems to harbour an insatiable hatred for Russia, and despite the problems encountered in the recent exercises such as Trident Juncture 2018, preparations seem to be taking place for a conventional conflict with Russia.

In any case, despite the evidence coming from international financial institutions and credit rating agencies that the Russian economy is growing in 2018, there are still claims from inside and outside Russia that this will not last and that Russia should somehow change course to avoid future or incipient difficulties. The most notable recent internal claim that Russia must concede defeat from Western sanctions comes from the economist Kudrin, while a well-known French economist Picketty has published a report misleadingly indicating that Russia continues to suffer from much greater wealth inequality than other industrial countries.

I remain of the view that Russia will remain resilient in the face of sanctions, but that it may well have difficulty in reaching its goal of 5 per cent growth per annum by 2024, partly for internal reasons, and partly because the world economy is facing a major near-term crisis that would have a serious impact on Russia, through no fault of its own. As an indication of the causes of what I believe is the coming global financial crisis, it is worth recalling that global debt is now 60 per cent higher than it was at the time of the last financial crisis of 2008, and that no major reforms of the Western-dominated global financial institutional structure have taken place. Moreover, the same kind of banking behaviour is becoming increasingly evident, with complex financial packages known as derivatives being based once again on dubious loans that are likely to be unpaid, or at least not repaid in full. These are so-called ‘non-performing’ loans. These clouds on the economic horizon have become darker owing to President Trump’s policy of trade wars with countries that he considers to be engaging in unfair competition with the USA. In addition, while Western economists have for some years predicted the slowing down of Chinese economic growth, and have been wrong, there is now reason to believe that the Chinese economy really is slowing down, while still growing.

If this apparent slow-down continues, it will have a negative effect on the rest of the world economy, as the second link above shows already. In addition, there is increasing evidence of poor economic performance in the EU:

Since a great deal of Russian trade is with China and the Eurozone currency area, such developments beyond Russian control could have a greater impact on Russian economic performance than sanctions. In addition, the boost to the Russian economy in 2018 from high oil prices looks vulnerable or at least unlikely to continue at the present level:

It is true that the oil price has recovered a little in the hours following the above report, but the need to cut production shows that continuing high oil prices cannot be taken for granted, and Russia has not yet decided to cut its own oil production. This has resulted in a further decline in the oil price.

Yet there is no denying that in 2018 the Russian economy has continued to grow, and this is now widely recognised by various Western credit rating agencies and international financial institutions.

The Emerging Consensus on Russian Economic Performance

The IMF has unequivocally reported that the Russian economy has grown in 2018, although it claims that some institutional factors will impede future growth. Its growth estimate for 2018 is 1.7 per cent and for 2019 it is 1.8 per cent. This implies that Russia will have difficulty in reaching its aim of 5 per cent growth per annum by 2024, as laid down in President Putin’s Address to the Nation on March 1st 2018. Nevertheless, the idea that Western sanctions are crushing the Russian economy, as some US Senators have implied, seems fanciful. This is the case even if one does not criticise the IMF for ignoring the possible changes that have already taken place in various sectors, such as agriculture, finance, civil aviation, car manufacture and big data. And indeed the official Russian figure on growth for the second quarter [Q2] of 2018 indicates that the economy is 1.8 per cent larger than it was in Q2 for 2017, so we may end up with an overall growth figure for 2018 that is slightly higher than the IMF estimate.

The main credit agencies have also publicly signed up to the narrative of continuing growth. For example, Moodys has also forecast growth along lines similar to those of the IMF. My own view is that such forecasts are unduly pessimistic, but only if one assumes that the world economy remains stable over the next few years. Thus it has been argued that the Russian financial sector has been somewhat underdeveloped, and yet the official figures from the Russian government statistical agency Rosstat show that in 2018 finance has been the fastest growing sector. In sharp contrast to the UK, where the financialisation of the economy has grown like a monster and now greatly influences economic priorities at the expense of productive investment and sound long-term growth, in Russia the finance sector until recently has been lacking in capacity to cope properly with the needs of the economic restructuring that has been taking place. One of the main reasons for this recent positive change has been the closure of around 100 banks with too high a proportion of non-performing loans, which has probably reduced the room for corruption and for capital flight, instead facilitating the focus of capital on the more productive sectors of the economy.

Nevertheless, sanctions did initially produce a recession in 2014, and it took two years to recover from that and restart growth. The loss of income over those two years has been estimated at about 6 per cent of GDP compared to the result of a steady growth rate during those two years.

It seems pretty clear that the outflow of capital from Russia which has been going on for over 25 years has been facilitated by the City of London, which has enabled the creation of anonymous companies (the names of whose directors are not publicly disclosed) that can readily be used to move funds to offshore tax havens. For example the recently discovered scandal whereby a branch of Danske Bank located in Estonia evaded oversight and acted as a conduit for the outflow of about $180 billion from CIS countries over a ten-year period has brought to light the fact that London-based anonymous companies were the main vehicle for hiding this outflow of funds. Closing such gaps by greater supervision of the activities of Russian banks should help stop this drain on the Russian economy. Yet there is still ongoing outflow of capital from Russia, which remains a potential cause for concern, and the Russian Central Bank expects sanctions to continue until at least 2021.

Unfortunately, the reduction in the outflow of funds from 2014 to 2017 has not yet led to a reverse flow of funds back into Russia to any great extent, because the Russian policy of “de-offshoreization” has had a limited impact so far, according to a recent report by Bloomberg. In addition, Russian millionaires continue to keep about 70 per cent of their assets abroad.

Yet it is important to stress that not all capital leaving Russia constitutes capital flight. As the link above says:

“According to the Central Bank, there are two main factors that make the outflow of capital grow. First off, Russian banks pay their foreign debts. Secondly, other sectors of economy invest in foreign assets. Earlier, the Central Bank reported the net outflow of $31.9 billion in January-September of 2018. Thus, as much as $10.3 billion were withdrawn from Russia in October.

It is worthy of note that Russia managed to improve its trade balance: its surplus amounted to $154.6 billion vs. $90.5 billion a year earlier. In addition, foreign exchange reserves (gold reserves) of the Central Bank of the Russian Federation have grown by $35.7 billion. The National Welfare Fund played a significant role in the trend: the reserves of the fund were growing owing to oil and gas super-profits (with the price of oil over $40 per barrel). According to the Central Bank, the outflow of capital from Russia for 2018 may reach $66 billion. This will be the largest indicator since 2014 ($152 billion), when the West imposed its first sanctions on Russia.”

In contrast to the outflow of capital, which as the Central Bank indicates can be beneficial, Russia has become more successful at attracting foreign direct investment [FDI] especially in the energy sector, despite sanctions. The most notable example of this is the flagship Yamal Liquefied Natural Gas [LNG] project in the Arctic. This was built with Russian, Chinese and French funding. In recent days, Saudi Arabia has expressed an interest in the follow-up project at Yamal, known as Arctic 2, as it tries to diversify its economy ahead of the decline in its own oil resources.

And whatever the fluctuations in the price of oil and gas, Russia is still using pipelines to secure greater stability in energy sales. The Nord Stream 2 pipeline has now reached the German shore and the Pride of Siberia pipeline in the Far East is also close to completion, but less publicity has been given to the fact that the Turk Stream pipeline has also now reached Turkish landfall.

Overall, the strong performance in the energy sector in generating available investment funds for other sectors, and the strengthening of the financial sector coupled with a growth of FDI should enable Russia to invest more effectively in future.

Other indicators of Russian economic performance

One Western economic appraisal recording some aspects of Russian economic performance is that of the World Economic Forum [WEF]. This indicates that Russia has improved on its competiveness index ranking, going up two places to 43rd out of 140 countries that are listed.

“…Russia’s standing was buoyed in the WEF rating this year by stable macroeconomics, a large market size, information and communications technology adoption and human capital…”

The factors that were thought to count against it were:

“Meanwhile, low transparency, innovation, limited interaction and diversity were listed as factors that hurt the Russian economy, along with weak institutions, workforce skills, lower social capital and a vulnerable financial system.”

These latter claims suggest that, to some extent at least, old prejudices are still in play. Contrary to these claims, Russia has a very low debt-to-GDP ratio, two sovereign wealth funds that have benefitted this year from the high price of oil, and a restructured and growing financial sector. Workforce skills are probably increasing with the inward migration of ethnic Russians from Ukraine, and it is clear that the reform of local government is ongoing. The IMF ‘ease of doing business’ index shows that transparency is increasing, contrary to the impression given by the WEF. Furthermore, both innovation and the diversification of the economy are clearly growing in agriculture, civil aviation, civilian space activity, car manufacture, and possibly in the future in the use of big data, as indicated in Putin’s speech of 1st March. The effects of measures to deal with many of these issues can be found on the Rosstat website:

Concentrating on innovation, and taking agriculture first, the Q2 figures self-evidently do not include the very recent results of the Russian harvest this year. This has once again (for the third year) exceeded earlier estimates, and the diversification within agriculture is clear, as well as the adoption of modern machinery where possible.

This video is less than 5 minutes long. The figures shown from 1 minute to 1 minute 30 seconds are worth noting. They show how much four agricultural sectors produced in relation to total Russian demand for these products. Even in meat production, Russia has produced 93 per cent of its own needs. For grain, it produced 170 per cent of its own needs. In sugar, the estimate was that 80 per cent of needs would be produced within Russia, whereas the actual output was 105 per cent, and in vegetable oil, the expected 80 per cent of demand being met internally turned out to be 153 per cent. The result is that Russia supplied more than half of the world’s wheat exports this year.

Russia is rapidly turning into an exporter in areas other than grain, and this growing export potential (with its geopolitical implications) has meant that a series of foreign ministers, as well as the World Health Organization, attended this exhibition. This rapidly changing agricultural performance is bound to increase overall economic growth in the coming years. One surprising new export crop is soya:

This might only be 3.9 million tonnes in a Chinese soya market of 95 million tonnes, but it will doubtless grow in future.

Note that the YouTube video above includes a statement that a possible reduction in VAT from 20 per cent to 10 per cent is envisaged for next year, which would reduce any upward pressure on prices, and there may be more funding for the existing policy of promoting certain agricultural regions. This raises the issue of how the performance of such special regions will be evaluated. For example, will the Ministry of Economic Development be involved and will there be specific measures such as the use of social accounting matrices to ‘capture’ the specific economic development in such regions? The ongoing growth in food production not only tends to reduce inflation and help the balance of payments, but also stimulates demand for agricultural machinery and relevant services. The planned increase in rural road construction should also foster growth in this sector.

Turning to another sector, the new American sanctions being imposed on Russian civil aviation are rightly seen as simply an attempt to contain Russian competition in this area, but as Ruslan Ostashko has argued, it will be technically easy to develop Russian alternatives to U.S. civil aviation electronics, given the capabilities shown in military avionics. Although the performance in flight tests of the MC-21 (a future competitor to the Boeing 737Max) is probably the precipitating cause of such sanctions, these sanctions cannot affect the use of composite materials in this civil aircraft, because no other plane has such technology and the components and materials were developed exclusively in Russia. So there is no way to prevent such a development programme by using sanctions. Similarly, on the wide body passenger jet being developed the new engines can readily be developed in Russia without relying on foreign expertise.

In car and bus production, the new Kamaz autonomous [driverless] bus was on display at the recent motor show in Moscow. No Western manufacturer has yet brought a similar vehicle to market. Doubtless the lessons learned in developing the Aurum luxury range of automobiles will soon cascade on to other car production.

With regard to big data, the use of distributed ledger recording of transactions is already well advanced in Russia, and not only in the area of cryptocurrencies. Apart from the fact that three of the largest five such companies are located in Russia, Russia has other potentially helpful ‘factor endowments’ in the area of big data. Firstly, there is the expertise in electronics that permitted Russia to develop its own microchip extremely rapidly. Doubtless the performance in this area will continue to improve. Secondly, there is the expertise in all aspects of computing which was evident to me 25 years ago when I visited the Computer Centre of the Russian Academy of Sciences [RAS], and the formerly secret nuclear city of Obninsk. For example, at the RAS I was shown a fully functional graphical user interface as good as MS Windows, but capable of running on an Intel 286 chip, whereas MS Windows (which had only just appeared in the West) required a 386 chip as a minimum. At the time, Russia lacked the financial capacity to market such a graphical user interface. In addition, a private company engaged in trade with China was using the programming language APL to construct its own database, without needing a proprietary commercial package. This would have enabled it to exceed the capacity limits of Western commercial database programmes available in those days, and the same would have been true of spreadsheets. In Obninsk, APL was also being used in nuclear safety, neural networking and statistical analysis quite separately from the macroeconomic modelling that was being done at the RAS. Thirdly, Russia could easily locate data warehouses near natural gas sources, thereby avoiding the transmission costs of the energy to run them, and (given the average cold temperatures in Russia) would incur lower costs in cooling such buildings. Electrical resistance of semiconductors generates heat, and this makes cooling of server buildings an issue for big data in some countries. Cryptocurrencies and other distributed ledger applications are pretty energy-intensive.

No need to surrender

In the light of such economic potential, it should be surprising that the well-known economist Kudrin is suggesting that Russia needs to make concessions to the West to ease the impact of sanctions.

Alexei Kudrin is Head of the Accounts Chamber and a former finance minister, so primafacie one would expect him to talk sense. Yet he considers that sanctions are the main threat to the President’s goals, as expressed in the Address to the Nation of 1st March. It should by now be clear that it would take far greater changes in the world economy, such as another financial crash, to throw the objectives for 2024 into serious jeopardy. There are positive elements in the balance of payments (oil, agriculture and arms, with civil aviation likely to be a growing sector) that will enable the Russian government to fund most of the objectives now set for 2014, in my view. The sovereign funds are increasing at the moment, and while this form of saving is a precautionary counter-measure to probable further sanctions, the fact that Russia is pretty much self-sufficient in raw materials, and has a growing skills base (with ethnic Russians coming from both Ukraine and Kazakhstan) should mean that additional sanctions will have a limited effect. There is also the likely prospect of military innovations cascading into the civilian economy, as used to happen in the USA, and this is particularly relevant for civil aviation and big data.

There is the additional problem that the West is stagnating economically and technologically, and has evident difficulty in developing new technologies, including in space. Where the West (and Far East) has had a technological lead with smart phones, the global market is showing clear signs of saturation. The same is true of social media, where stocks are declining quite steeply at the moment, and where Russia or China have rival products already in place. It is likely that the West has little to offer Russia if sanctions are lifted, given the changes that have already taken place in Russia. Sanctions are mainly about financial power and that is already ebbing away in the West. Russia on the other hand will continue to strengthen gradually owing to the growing strength and sophistication of Russian financial institutions, the policies of currency swaps to facilitate non-dollar trade, alternatives to SWIFT developed in both Russia and China, and perhaps in future more “de-offshoreization”.

The ‘failure of nerve’ shown by Kudrin indicates the pernicious effect of Western neoliberal ideology, and raises once again the issue of its influence on aspects of Russian economic policy-making. This can be seen in the case of the pension reform earlier this year, for which Kudrin had lobbied over a period of some years. Having looked again at the research report that was published in Russia just before the law was changed on the age at which people become eligible for a state pension, I am even more convinced that it was premature to introduce this legislation. The report looked at the interaction between demographic and economic changes in present-day Russia covering five aspects, and argued that to raise the age of pension eligibility would adversely affect the economy, and slow down economic growth. While this would not be the case in many industrial societies most of which have a very different demographic profile, Russia is unusual and it would have been preferable to delay the introduction of such a measure, in order to avoid the negative impact just at a time when economic growth was picking up.

There was an analogous case with South Africa at the end of Apartheid in 1994, where the political settlement that was reached included enormous pension payments to South African civil servants. An econometric and demographic analysis there showed that it would have been possible to have a ‘pension holiday’ for a few years in order to devote those funds to kick-starting the economy – a high priority at the time. It was shown that this would not really have adversely affected those pension payments, but strong vested interests prevented this temporary diversion of pension payments from taking place.

The Saker has commented on Putin’s adroit response to the political backlash that took place in mid-2018 when the new pension law was introduced during the football World Cup. The subsequent changes to the legislation may have mitigated some of the adverse effects, but the outcome will not be as good as if the legislation had been postponed for a few years to facilitate the desired acceleration of the economic growth rate.

Why Russian growth may not be constrained by the factors highlighted by the Washington Consensus.

Russia is simply running a mixed economy, with most of it privately owned and parts of it in public ownership. This was considered perfectly normal in Western Europe from 1945 until the late 1970s, and even now forms quite a large segment of economic activity in countries such as France. The advantages of such public sector activity include reaping the benefits of ‘natural monopolies’ such as railways or utilities where competition is likely to be restricted under normal market conditions. These benefits then potentially include additional state revenues, long-term time horizons for investment planning and at times greater democratic control. In the UK the fact that foreign state-owned companies now own companies that were originally privatised is an indicator of how the ‘logic’ of natural monopolies can sometimes prevail even in competitive market conditions. It is much easier to develop a realistic long-term national economic strategy if those natural monopolies are under government control.

In general, more equal societies grow more quickly, contrary to the mythology of the neoliberal Washington Consensus. It is increasingly clear that the increased inequality of income and wealth generated by the neoliberal policies of that last 38 years has acted as a drag on growth and has contributed to the economic instability that resulted in the financial crash of 2008. Russia is widely considered to be a very unequal society, but this view ignores the impact of measures to reduce such inequalities of income and wealth, especially poverty reduction measures that have had a significant impact. This now includes minimum wage legislation that appears to have been influenced by the research of Professor James K. Galbraith at the University of Austin, Texas.

The view that wealth inequality in Russia is huge has recently been given a boost from a book by the well-known French economist Thomas Piketty. However, that book has been subject to very serious critique by the Swedish economist Jon Hellevig:

Hellevig argues that under its present leadership, Russia has been moving towards a more equal society, a trend that seems to be continuing despite the glaring inequality of income and wealth. Hellevig’s point is that these glaring inequalities are not dire in terms of international comparisons.

“After identifying the deficiencies, we have adjusted the main findings announced by the Piketty scholars to reflect the actual data. Corrected data shows that instead of earning 45-50% of national income as claimed by the our Piketty scholars, the top 10% of Russians earned less than 30% of the income. Correspondingly, our corrected data shows that instead of owning more than 70% of the national wealth, the wealth of the top 10 percent of the population was 39% of private wealth and 32% of total national wealth.”

This refutation by Hellevig, which shows that the glaring inequalities are not dire in terms of international comparisons, indicates how Russian society has changed since the 1990s. The so-called ‘oligarchs’ have less weight in the economy and almost certainly less political power. It seems that the member of the Duma who stated that there are no oligarchs any more may well have been correctly pointing to the changed political landscape, even if that was probably an overstatement. The wealthy no longer seem to dominate the political agenda completely, in contrast to the 1990s. Insofar as they do have an impact on policy, it seems to be through the ongoing influence of neoliberal ideologists such as Kudrin and others in certain parts of the government.

Returning to the potentially strategic importance of the state in economic performance, the historical evidence indicates that since the 18th century state-sponsored growth has been vital for stimulating economic growth, especially for industrialisation. The famous five Asian tigers are clear examples of this during the last 40 years or so, but in fact all economies have relied initially on state-sponsored growth in the early phases of industrialisation. Even the UK relied on the dominance of the Royal Navy to support its dominant trade position and ensure that the colonies, especially India, supplied the economic surplus necessary to finance the industrial revolution. Historically, it is only the leading global economy (the UK, then the USA, then China) that advocates free trade, after it has achieved its dominance.

Russia fulfils both criteria for long-term growth, namely, it is not too unequal and has a state-sponsored growth strategy. It also has the most fundamental feature for long-term growth, namely population growth, and is now the only technologically advanced society to have this positive demographic profile. That is a result both of growing optimism about the future and of more stable families. Among ethnic Russians and some minorities this is almost certainly a result of the restored influence of Christianity.

Conclusion

While Russia may well struggle against growing global economic ‘headwinds’ to achieve its aim of 5 per cent growth per annum by 2024, it quite clearly has the resilience to cope with the current sanctions in place and to help shield other economies from sanctions by using currency swaps, occasional barter agreements, the use of an alternative international payments system to SWIFT and other measures. By contrast, the EU seems unable to help shield Iran against US sanctions because it does not possess an alternative to SWIFT and SWIFT itself has already caved in to US financial threats and refused to process payments going to Iran. In addition, the EU can find no member state willing to host any financial institution designed to facilitate trade between the EU and Iran in fulfilment of the nuclear deal that the US has recently withdrawn from. Apart from Russia, only China has the financial muscle and its own alternative to SWIFT to help Iran to withstand the US sanctions.

The fact that Russia is innovating in agriculture, energy production, civilian space activity, civil aviation, automobiles and intends to do so in big data (partly for greater transparency and responsiveness in government administration) shows that its prospects for economic growth remain good.

The Essential Saker III: Chronicling The Tragedy, Farce And Collapse of the Empire in the Era of Mr MAGA

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26 Comments

“Unfortunately, the reduction in the outflow of funds from 2014 to 2017 has not yet led to a reverse flow of funds back into Russia to any great extent, because the Russian policy of “de-offshoreization” has had a limited impact so far, according to a recent report by Bloomberg. In addition, Russian millionaires continue to keep about 70 per cent of their assets abroad.”

The oligarchs have not been incentivized enough to repatriate their “thefts” and put the capital into circulation inside the Russian economy.

The greatest fear to the oligarchs is now the potential of confiscation by U.S. Sanctions. It has begun in other nations, not UK. Cyprus and Switzerland bank accounts are not as safe for the oligarchs of late. But the key seems to be the UK London banks. And of course, the Brits provide a citadel for the oligarchs’ wealth.

Russia will have to create conditions in UK that work against the oligarchs while incentives have to be constructed to reward and expedite the return of capital.

A future key might be blockchain currency. If it comes into use, it might be entirely possible to anchor it to domestic banking only. That would change the paradigm and enrich the Russian economy.

I fully agree that London provides a citadel for the funds of rich Russians. While some like Abramovich have had obstacles place din their way, and a lot of rhetoric has made much of this, in fact most rich Russians have been told that their assets are safe in London.

China’s remedy to this has been to have unpatriatic oligarchs confess publicly on TV; and it seems to have worked as a deterrent.
We’ll probably have to wait for the after-Putin communist-nationalist coalition to take over to see this kind of solution implemented, supposing the need still exists by that time.

I’m sorry but given where we have been and where we are going I doubt very much there will be any economic resilence to look forward to.

CTG describes best I think what we are facing and will face further in the future:

Just some of my thoughts. It may sound trivial but it does have a huge impact.
From the beginning of time until early 1900s, people lived in a world where things or technology do not change much. Things/tools/equipment used in the 1800s are basically almost the same as the previous hundreds of years. It is not complicated. Smart people can look, take them apart and understand how it works and possibly replicate them. Unfortunately, from the 1900s until today, it is just not possible.
Our latest technological marvels today are basically electronics and it is far too complex for anyone except the designer to understand. No one else can replicate them unless you steal the information related to it.
** The key here ** All these new tools/equipment/toys need a comprehensive supporting ecosystem in order for them to work. ** This is the key.
Just some thoughts for academic exercise – if you time travel back from 1800s to 1500s and your brought along what is the latest in 1800s (steam engines), can you use it in 1500? Yes you can. Can the people of 1500 replicate that engine? Yes they can because it is not complex and even people in 1500 know that steam is powerful (it is just that they don’t know how to harness it).
Now, think about it. You bring what is best now in 2018 and bring it back to 1980 or even 1950 or 1900. Will those things work? No
Smartphones will not even work if you bring it back to 2000. When new phones comes out, they push out the old technology. Smartphones do not support 2G anymore. They support 3G, 4G, 5G, etc.
Computers – even if you bring it back to 2000, it can still be used but they don’t have USB back then. The computer does not floppy disks, etc. So, this 2018 computer may have a problems working with the devices back in 2000 (remember this is just like 2 decades ago only, not 200 years).
** In 1990s, we have the 80286, 80386 with DOS and Word Perfect, Lotus 123, etc. Was the system slow? No, it was pretty good to me. 99% of the users of latest Office 365 (2018) will not use any advanced features and they can continue to be productive with Word Perfect and DOS. I am a avid computer user (gaming, productive work, etc) and I remembered that DOS was very stable and it did not crash often. Uses little memory and what I do today, I can do it easily with the old system.
Microprocessors advanced leaps and bounds but the OS took away all the processing power (in the name of “ease of use”). Compare with 1980s and present system, we did the same set of things (word processing, spreadsheet). Once with old system and one with new system. Improvements? no. Productivity increase? Maybe but not significant (can you draft more letters with Office 365 as compared to Word Perfect 5.1?) Headaches? Yes (more complexity more crashes). So, in other words, we spent 30 years improving something for nothing.. What a waste of energy.
Power tools cannot be used in 1900 because electricity was not easily available. Can anyone replicate that power tool in 1900 ? Cannot.
Supporting ecosystem
If you were to time travel yourself and a brand new and best 4WD SUV, tractors or any modern conveniences back to 1900s, you will realize that you can only use them for a short while. Let us assume that you transported a huge tank of gasoline/petrol/diesel, you will soon realize that if your puncture your tire, you have no way to repair the leak If your windscreen cracks, you have no way to change it. If your car or tractor breaks down, you cannot even tow it back. Will the locals in 1900s help you? yes, just to tow it back to your place and it will be a piece of junk because no one knows how to repair it and they have no idea how to replicate the parts. If you want to fully utilize the modern conveniences, you need to bring along everything (the ecosystem) with you. That includes everything and everyone. Tesla? you cannot even charge it unless you have a way to generate electricity. New cars/trucks/tractors are full of electronics. They need special people, special tools (and yes electricity and internet) to diagnose what happen to your car/tractor/truck.
There was a movie that I saw a long time ago. It was about a US aircraft carrier time travel back to the days of World War 2 where Japan was about to attack Pearl Harbour. If the aircraft carrier was a 1960s type of aircraft carrier and its jet planes, the people of 1940s may still be able to use/repair them. However, if you send back the 2010s version of military equipment, it is just as good as junk once the tools/equipment/parts spoil because no one knows how to repair them easily. They are all too complex and top secret (only certain people know how to repair them).
So, after writing all these paragraphs above, what is my point?
** In a post apocalyptic world, only the delusional will say they can salvage parts of the collapsed society and make things work.

Here’s also a good example of what high tech has unfortunately done to the military:

I’ve been reading about early aviators, the trans (no, not that kind of Trans!) and inter-continental flyers. Amazing what the mechanics could do when they crashed with some simple tools and some wire, cloth, etc.
In contrast, I watched a film about elite British soldiers in Iraq: when some computerised element failed on one of their – admittedly fantastic and very expensive – trucks, the mechanic could hardly do a thing, and they had to limp home after barely starting the tour, and very vulnerable. In the 1940’s, he’d have had that truck up and running, or cannibalised it for parts.https://ourfiniteworld.com/2018/11/07/why-we-get-bad-diagnoses-for-the-worlds-energy-economy-problems/comment-page-19/#comment-192644

The first species to do itself in through sheer inventiveness? I LOVE THIS SENTENCE!!!

Furthermore, I think the only thing the world has to look forward to is what is currently occurring in Sweden:

In Sweden, Cash Is Almost Extinct As People Implant Microchips Into Their Hands To Pay For Purchases

More than 4,000 Swedes have implanted microchips in their hands, allowing them to pay for rail travel and food, or enter keyless offices, with a wave.
Just a few years ago, there were a couple of hundred of people in Sweden using human implantable microchips. The a thousand, then a few thousand, and now Sweden leads the world in microchip purchases. Cash in Sweden now accounts for only 1% of all transactions, and a full 50% of all Swedish banks will not accept cash deposits.
“And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads:” Revelation 13:16 (KJV)
Two events are taking place simultaneously. First, with or without implantable microchips cash is rapidly disappearing. Debit cards and mobile device purchasing apps are seeing to that. Second, the microchip is not coming, it is here. The Android or iPhone you are reading this article on has a microchip inside it, and you take that chip everywhere you go. Within 18 months to 3 years from now, many of you will personally know people who have been chipped and pay for purchases that way.

I am firmly opposed to both the cashless society and chip implants. Some Swedes are now waking up to some of the problems of a totally cashless society. I have discussed the attempt to push a cashless agenda in India at a conference in St. Petersburg, Russia, in May 2017.

Gary, I totally agree with you. The only reason for cashless society, in my opinion, is so the big brother (money handlers and whoever serves them) can totally control our finances while also monitoring spending, watching where the money is going, how much booze we consume, etc. Hence all those plans like air-miles, etc. This is why inflation was introduced so that the $100 you had last year is worthless 10 years from now. Unlike the situation, where few years back my grandmother gave my kids Gold French franks from 1800’s, worth more today than in 1800. Those could be kept in your mattress without having to worry that with paper or fake money tomorrow you can wipe your butt with paper money, if you run out of toilet paper.

I like so much how Catherine Austin Fitts describes what is being planned for us all “Livestock Management.”

As usual the masses don’t understand that the problem of mankind is their own sin nature and as hard as it for some to believe a coming king will try and deal with the immorality by legislating it through control of our bread and conscience!

Mr. Global has truly arrived and is up to much experimentation with the worlds financial systems {universal basic income and such } and I think is about to pull off a great robin hood moment?

And here for ones reading and viewing pleasure of biblical prophecy literally coming to fruition is this from China:

China Has Built the World’s First Digital Mark of the Beast. Most Other Countries Are Not Far Behind.

China’s communist government is implementing a “social credit” scorecard in order to control and coerce more than a billion people into compliance. This is accomplished by high-tech surveillance systems, including facial recognition, body scanning, and tracking. Smartphone apps monitor daily behavior. The score also depends on educational and medical records, state security assessments, and financial records. Already, about 10-million people with low scores have been punished with bans on travel, employment, and credit. A Communist Party document says the program will “allow the trustworthy to roam freely under heaven while making it hard for the discredited to take a single step”. Anyone who is critical of the government will be classified as discredited. This is the goal of all collectivist systems. GEG

China is building a digital dictatorship to exert control over its 1.4 billion citizens. For some, “social credit” will bring privileges — for others, punishment.
Dandan Fan is very much the modern Chinese woman.
A marketing professional, she’s diligent and prosperous — in many ways she’s a model Chinese citizen.
But Dandan is being watched 24 hours a day.

A vast network of 200 million CCTV cameras across China ensures there’s no dark corner in which to hide.
Every step she takes, every one of her actions big or small — even what she thinks — can be tracked and judged.
And Dandan says that’s fine with her.

What may sound like a dystopian vision of the future is already happening in China. And it’s making and breaking lives.
The Communist Party calls it “social credit” and says it will be fully operational by 2020.
Within years, an official Party outline claims, it will “allow the trustworthy to roam freely under heaven while making it hard for the discredited to take a single step”.
Social credit is like a personal scorecard for each of China’s 1.4 billion citizens.
In one pilot program already in place, each citizen has been assigned a score out of 800. In other programs it’s 900.
Those, like Dandan, with top “citizen scores” get VIP treatment at hotels and airports, cheap loans and a fast track to the best universities and jobs.

“It will allow the trustworthy to roam freely under heaven while making it hard for the discredited to take a single step.”
Those at the bottom can be locked out of society and banned from travel, or barred from getting credit or government jobs.
The system will be enforced by the latest in high-tech surveillance systems as China pushes to become the world leader in artificial intelligence.
Surveillance cameras will be equipped with facial recognition, body scanning and geo-tracking to cast a constant gaze over every citizen.

Smartphone apps will also be used to collect data and monitor online behaviour on a day-to-day basis.
Then, big data from more traditional sources like government records, including educational and medical, state security assessments and financial records, will be fed into individual scores.
Trial social credit systems are now in various stages of development in at least a dozen cities across China.
Several companies are working with the state to nationalise the system, co-ordinate and configure the technology, and finalise the algorithms that will determine the national citizen score.
It’s probably the largest social engineering project ever attempted, a way to control and coerce more than a billion people.

Yes, Milan, my thoughts exactly! That’s why I don’t buy cars of after a certain year, so that they can still be made to run with my 1980’s tools and without need of complex electronics.

And what you said about computers I’ve been hammering on to all who want to listen since the introduction of M$ GUI crapware. When Win 3.0/3.1 arrived I saw it’s instability, RAM gluttony and built in obsoleteness. DOS with all its design flaws and WP did indeed allow me to produce a good looking and text corrected document in less time than currently on a computer with thousands of times the processor frequency, millions of times the iterations per second and more GB of RAM than even ‘power hungry’ OS/2 Warp needed in MB of RAM (ran really well on 8MB, flew on 16).

Last week my wife needed a better file manager on her Android tablet. But then all the ones I tried wouldn’t install because of lack of ‘space’ on the device’s storage medium. After deleting hundreds of MB of software and data and cleaning up, still not enough space. Me fuming. Obviously I don’t have to tell you that the most powerful DOS period file managers never took up more space than maybe 100 or 200k, well, these Android abominations require over 1 thousand times more space on storage. Have all programmers gone incompetent or mad? Even OS/2 had a kernel taking less than 1MB in memory and now a simple file manager takes hundreds of times more?

One would almost wish for a huge coronal mass ejection to stop the madness. These 4000 Swedes would soon get very, very hungry… That would serve them well.

Lots of great information here written by a very well informed and knowledgeable author!

I question this sentence:
“Even the UK relied on the dominance of the Royal Navy to support its dominant trade position and ensure that the colonies, especially India, supplied the economic surplus necessary to finance the industrial revolution”..

I believe it was the other way around…

It was the agriculture revolution in Britain that created the economic surplus for the industrial revolution, which in turn gave ascendency to the British Navy.

In 1650, the agricultural revolution started using innovative crop-rotation techniques which provided a surplus of food. This was followed by the Enlosures Act which consolidated the farm ownership into the hands of an oligarchy and forced many poor into the cities who subsequently became the workers for the industrial revolution.

Battle of Plassey took place much later. The empire created a global hub in London and gave rise to the merchant banks as they operated the financial side of global trade, but the British industry declined as the empire grew. It is the same with the US, an empire with a hollowed-out industrial base.

Even the UK relied on the dominance of the Royal Navy to support its dominant trade position and ensure that the colonies, especially India, supplied the economic surplus necessary to finance the industrial revolution”.

.India supplied …..?what a nice way of saying !

The early british agronomist saw the expertise and tools of an advanced agricultural tradition in India such as crop rotation, intercropping, the use of nitrogen fixing legumes, line sowing, and took it to England

In fact during the height of its power, the British Empire was importing four fifths of its grain, tree quarters of its dairy products and almost half of its meat !.

In contrast, are the descriptions of rural India by foreign travelers and the facts recorded by colonial officials. The descriptions of rural scenes in India by Chinese travelers Fa Hien (5th century AD.) and Huang Tsang (7th century AD), by Francois Bernier (1656-1688) and Mr. Le Tavernier (18th century AD.) about the marvels and abundance of India (Sonar Bangla) might be coloured with romanticism, though temple inscriptions in South India seem to confirm their view. From these inscriptions ( 9th to 12th century AD.) it appears that rice yields for instance were remarkable. They mention rice yields in Tanjavur equivalent to 12 to 18 tons per hectare, in Coimbatore 13 tons and in South Arcot 14,5 tons per hectare !

In the 18th century (around 1770), Thomas Barnard, a British engineer, conducted a survey in Chengalpattu district near Madras covering 800 villages. The results show the average yield of wetland rice to be 3600 kg/ha and 1600 kg/ha for dryland rice. In 130 villages the average yield for wetland rice was 8200 kg/ha, while the yields in many surpassed 10,000 kg/ha. The present day average for rice in the same area is 3177 kg/ha. The Indian average is 1667 kg/ha. ( ICAR 1997:763).

Per acre productivity of wheat in India in 1804 was almost three times higher than that of England. In 1903 wheat production in the Allahabad area was about 4000 kg/ha.(Kate 1995). The average wheat production in France in 1985 was 3760 kg/ha.

The sophistication of agricultural practices in the 17-18th century was beyond even the comment of colonial officials. Technologies such as the use of seed drills and cropping of cereals with legumes had already been perfected centuries ago,

In 1873, after the opening of the Suez Canal the first wheat shipped from India arrived in England. The British envisaged India as a potentially secure source of wheat for the Empire. “Though much rice and wheat were exported, domestic availability grew at about the same rate” (Shiva 1991:57)

Bernie, this is not a criticism, but wouldn’t it be easier for the lazy old bums like me to read everything in the same units like hectare or acre? Now you make me dig out my calculator and start converting.
Sorry bud, excellent comment.

It is really great to have the informative comments here concerning my remark on India. I regret that I was misleading in what I wrote. My comment was based on a memory of a book by the Indian economist Jagdish Baghwati but he only said that the total amount extracted from the colony of India was equivalent to the amount required to finance the industrial revolution in the UK. He did not imply that this happened chronologically or causally and I did not intend to convey that either. So I fully accept the comments from Serbian Girl and Bernie.

Of course the financial flows were different in time and space, and much of the surplus coming from various colonies and trade was spent on conspicuous consumption in the UK, including various museums and art galleries.

just picked this up about sanctions and the agri business. What a sad state of affairs:

Harvesting in a trade war: U.S. crops rot as storage costs soar

For Louisiana farmer Richard Fontenot and his neighbors, the solution was a costly one: Let the crops rot.
Fontenot plowed under 1,000 of his 1,700 soybean acres this fall, chopping plants into the dirt instead of harvesting more than $300,000 worth of beans.
His beans were damaged by bad weather, made worse by a wet harvest. Normally, he could sell them anyway to a local elevator – giant silos usually run by international grains merchants that store grain.

”The most notable recent internal claim that Russia must concede defeat from Western sanctions comes from the economist Kudrin, while a well-known French economist Picketty has published a report misleadingly indicating that Russia continues to suffer from much greater wealth inequality than other industrial countries.”

Ergo: Liberals and Western Marxists forever finding common ground attacking ’lousy authoritarian regimes’ around the planet. Anybody still listening to these specimina?

Such analyses as this focus too narrowly on the superficial financial “economy”. Moreover, the numbers cited mostly come from the very same Western financial establishment, or the governments that work for it. US and UK inflation, GNP, unemployment, etc. figures have been grossly distorted for decades. As economists like Michael Hudson reveal, the FIRE (financial, insurance and real estate) sectors behave like murderous parasites on their host – the real economy that makes things and provides useful services.

Russia’s real economy is thriving, despite the efforts of financial parasites to drag it down and leave Russia vulnerable – again – to being taken over by Westerners. There is remarkably little that Russia needs to import, while it has plentiful resources that allow it export on a huge scale.

It is the West that is rapidly running out of real wealth, and Russia that still has lots of it. Which accounts for the desperate efforts the West has been making to conquer and loot Russia.

I agree with a lot of what you say, but I do discuss real (as opposed to financial) sectors. The point of using Western establishment analyses is that even these are admitting that Russia is growing despite sanctions. I am well aware that Russian growth is probably higher than these figures suggest, and indicate that when discussing agriculture. I was unable to get a clear answer from Rossat on how the official price deflator is used when calculating the rate of growth of GDP. So I cannot provide an alternative estimate of Russian growth to the latest official Russian figure available to me. However, it is clear that the official Russian figure is almost identical to that of the IMF.

See the discussion of the analysis provided by Jon Hellevig in my earlier article published on about the 6th April on the Saker website.

Excellent article.
I have couple or more points.
Electronics. In the early 70’s when I was at the university. Semiconductors were just evolving. I understood that Soviet Union was a leader in miniature ceramic tubes/bulbs (whatever you want to call them), which were very resilient against radioactivity and other interference. Everything was for military use, as SU was under constant threat just like Russia is today. SU had the technology, although officially lagged behind the Silicon Valley. USofA had SU and Russia under constant export control (sanctions) for many products. So things really haven’t changed much, but here is a clincher: in late 70’s USofA happily handed over all it’s designs to China. So, Russia has a backdoor access to all those components, since everything today is made in Far East and China which does not care as long as it makes money. I just read about Putin requesting construction of a super fast supercomputer, the field Russia lagged behind, as China today has the most powerful supercomputers in the World. I do not think I need to explain, why they are so important for Science and obviously the Military. I still remember my first computer based on S-100, CP/M barely 1MHz and 64Kbytes of Ram, and 8″ floppy drives this was in 1977. I had to build my own monitor for it as well. Anyway, sorry for the sidestep. Now back to the subject at hand. As for oil, Russia’s current budget is based on the lower oil prices, so it knows that it can enjoy the influx of money while it can. The way I see it, the glut of oil is finished, as USofA’s shale oil is a money losing proposition requiring the price to be $70/bl to just brake even, the same goes for Canadian oil from oil-sands. Drops in Russia’s GDP is easy to explain, although the West likes to exaggerate the effects. As for Banking, it is my understanding the The Biggest Banks in EU are insoluble and the big crash is awaiting all of us in very near future. Which also explains all the BS directed against Russia, while the mess in the West is being shoved under the rug.

If one reads websites such as Fort Russ carefully, it is clear that Russia has a considerable military capacity in electronics. It is also clear that a lot of Russian equipment is hardened against EMP effects, whereas very little Western military equipment is so shielded. On the European banking crisis, I did indicate that there are huge problems by citing a report in the introduction above, and pointing to further difficulties of the EU in the conclusion. I made some comments about this at the same conference in St. Petersburg in 2017 that I have mentioned in comments above. A Swiss banker present did not disagree with my remarks.

What needs to be considered is The coming world wide economic crisis and which countries will have not only resilience but “bounce”?

Also given Putin’s 6 year plan for infrastructure updating and system complexity making, how do these old type economic paradymes even have
Relevance? figures may look grim but then may not speak to an emerging reality. The wealth of Russia has not even begun to be plumbed and a new technocratic elite is being shaped right now to manage it.

Put bluntly, America’s Dollar Empire is the lynchpin of the global financial and economic system.

But this American system is one that the hordes of pro-American propagandists and agents of influence try to deny, cover up, downplay, or divert attention from. It is thus the proverbial gorilla-in-the-living room issue that must be relentlessly exposed.

In brief, the reserve currency status of the dollar allows America to suck in “loans” from the rest of the world … loans that it will never pay back. These euphemistic loans (in the form of US Treasury sales and debt) are actually a form of imperial tribute that the American Empire extracts from the world. This financial tribute is essential to propping up the American economy, wealth, prosperity, and way of life general.

In a revealing moment of political incorrectness, Vladimir Putin once admitted that America is thus a parasite on the global economy:

Furthermore, the special status of the US Dollar enables America to wage financial warfare… or more honestly, financial terrorism … on any nation that stands in the way of America’s unipolar “New World Order.”

The targets of American dollar terrorism include not only Russia but also China, Turkey, Iran, and even the USA’s vassal nations of Europe.

The Turkish Lira crisis; American trade wars against China, Europe, and Japan; economic sanctions against Iran and Russia–all these critical issues cannot be understood without exposing America’s weaponization of the Almighty Dollar.

As William Engdahl states,

“Today by far the deadliest weapon of mass destruction in Washington’s arsenal lies not with the Pentagon or its traditional killing machines. It’s de facto a silent weapon: the ability of Washington to control the global supply of money, of dollars, through actions of the privately-owned Federal Reserve in coordination with the US Treasury and select Wall Street financial groups. Developed over a period of decades since the decoupling of the dollar from gold by Nixon in August, 1971, today control of the dollar is a financial weapon that few if any rival nations are prepared to withstand, at least not yet.

[ … ]

The Fed is weaponizing the US dollar and the preconditions are in many ways similar to that during the 1997 Asia crisis. Then all it needed was a concerted US hedge fund attack on the weakest Asian Tier economy, the Thai Baht to trigger collapse across most of South Asia to South Korea and even Hong Kong. Today the trigger is Trump and his bellicose tweets against Erdogan.

The US Trump trade wars, political sanctions and new tax laws, in the context of the clear Fed strategy of dollar tightening, provide the backdrop to wage a dollar war against key political opponents globally without ever having to declare war. All it took was a series of trade provocations against the huge China economy, political provocations against the Turkish government, new groundless sanctions against Russia, and banks from Paris to Milan to Frankfurt to New York and anyone else with dollar loans to higher risk emerging markets began the rush for the exit. The Lira collapses as a result of near panic selling, or the Iran currency crisis, the fall of the Russian ruble. All reflects the beginning, as likely does the decline in the China Renminbi, of a global dollar shortage.

If Washington succeeds on November 4 in cutting all Iran oil exports, world (dollar) oil prices could soar above 100 dollars, adding dramatically to the developing world dollar shortage. This is war by other means. The Fed dollar strategy is acting now as a “silent weapon” for not so quiet wars. If it continues it could deal a serious setback to the growing independence of Eurasian countries around the China New Silk Road and the Russia-China-Iran alternative to the dollar system. The role of the dollar as lead global reserve currency and the ability of the Federal Reserve to control it, is a weapon of massive destruction and a strategic pillar of American superpower control. Are the nations of Eurasia or even the ECB ready to deal effectively?

The bottom line is this: you cannot have an “economy of resilience” in Russia or in any nation … unless you have developed defenses against America, its Dollar Weapon of Mass Destruction, and the (covert) financial terror war that the USA is waging.

I agree with almost everything in this comment. I have long been aware of the implications of the status of the US dollar as a reserve currency, having lived through the collapse of the Sterling Area in 1967 that left the US dollar as the sole reserve currency. I have analysed a lot of this in a blog for the academic journal Review of African Political Economy on their website roape.net about three years ago. I have also told an American banker that I was fully aware of such issues as long ago as 2005.

I have great respect for William Engdahl’s work, and cannot recall ever disagreeing with his analysis, but so far the US has not been able to prevent the sale of Iranian oil. That is partly because of currency swap arrangements. If I remember correctly, Russia has also offered to sell some Iranian oil. It is clear that the USA is engaged in economic warfare, and that Russia and China have a limited capacity to deal with this, but although the Russian economy is only probably slightly bigger than that of Germany (on a PPP comparator) it is still in a fairly strong position to resist American tactics. It can feed its own population, and is only one of four countries with an exported agricultural surplus (the other three being the USA, Canada and France, with the latter being a very small net exporter). Its state budget is set at a level that it can be financed so long as oil is above $40 per barrel, and it is now roughly about $55. It has arranged currency swaps with various countries including China and Iran. It has an existing means of international payments that is SWIFT-compatible, but which means that its own transactions using the SWIFT replacement are not directly visible to the US banking system. It does not trade much with the USA, and is finding it easy to substitute other products of its own making where it has imported such products from the USA until recently.

I do not think this is enough if things get worse but Russia can only do so much at any time, and is better prepared for this form of economic pressure than probably any other country. So it is resilient, and continues to become more so. The American actions are making the global economy more unstable, and I think that the EU is really vulnerable to this, so the Euro could collapse as a currency.

Sergei Kudrin is Dr Doom a fossil from the Ordovician period left over and bleached in the sun. He hasn’t had an original idea in years and would sell off his native land for a few shekels on the dollar. His predictions of growth ahved been in error for years but Sergei can’t learn from his own history or acknowledge the Russian people are making enormous progress. If Mr Putin and Mr Medvedev stay on the course they will succeed and prosperity is knocking on the door. More coops similar to Mondragon are worth investment and nurturing as they engage workers in their own futures.
The future belongs to Russia and China and two are drawing closer and closer together. So when Sergei takes the stage as he must to keep his stale ideas rolling take them with a grain of salt or less for they are worth virtually nil for Russia’s future.

As I have surely indicated I am not a fan of Kudrin, but the Reuters report above is about Igor Sechin. In pointing out that Venezuela has met is obligations to China, Sechin was almost certainly emphasising that Venezuela has not done what it agreed to on its debts to Russia.

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